Price-level accounting;

              Price-Level Accounting
by OSCAR S. GELLEIN Partner, Executive Office
Presented before the Saint Louis Chapter of the Financial Executives Institute — March 1963
NONE of us requires evidence that prices have gone up and that they have been doing so for some time. We have not only seen it, we have felt it. The persistence of the rise is to be noted in some of the following:
Index
(In the first column 1935 = 100; in the second, 1950 = 100)
Consumer Wholesale Building
Year Prices Prices Cost
1935 100 ... 100 ... 100
1940 102 ... 98 ... 122
1945 131 ... 132 ... 144
1950 175 100 198 100 226 100
1955 195 110 213 107 282 125
1960 215 123 225 116 337 149
1962 (Oct.) .... 221 127 230 116 352 156
This is enough to show what we already knew. Prices have more than doubled in the last 20 to 25 years, and have gone up from a sixth to a fourth in the last ten years. This means that for many businesses a not insignificant portion of the figures in 1962 financial statements arose from transactions occurring when prices were one-half of what they are today. Does this have any accounting significance? A few say "no—after all a dollar is a dollar is a dollar, and dollars are what we are accounting for." Others say '"yes—a dollar has become 50 cents and may be 25 cents tomorrow, and accordingly is a pretty bad measure for accounting to be using." The views of accountants and business executives today are arrayed somewhere between these two positions.
MANY-SIDED EFFECTS OF PRICE CHANGES
Views are fermenting about price-level accounting—there is no question about that. The problem is difficult because it has many sides, and affects businesses in many ways. Businesses, including foundations, funds, and educational institutions as well as other entities concerned mainly with finance, manufacture, merchandising, and personal service, are affected by price changes in diverse ways. The principal assets of some businesses are fixed-term, fixed-rate
101